Question

Suppose an investor has a $ 1 million long position in T-bond futures. The investor’s broker requires a maintenance margin of 4 percent, which is the amount currently in the investor’s account.
a. Suppose also that the value of the futures contract drops by $ 50,000 to $ 950,000. How much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor’s account balance (assuming no excess) as a result of the price drop?
b. If the futures contract drops in value the next day by another $ 40,000, to $ 910,000, how much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor’s account balance (assuming no excess) as a result of the price drop?
c. If, on day 3, the futures contract increases in value by $ 65,000, to $ 975,000, how much will the investor be able to withdraw from his account to maintain his margin? What will be the value of the investor’s account balance (assuming no excess) as a result of the price drop?
d. Suppose, instead, an investor has a $ 1 million short position in T-bond futures and that the value of the futures contract increases by $ 50,000 to $ 1,050,000. How much will the investor be required to pay his broker to maintain his margin? What will be the value of the investor’s account balance (assuming no excess) as a result of the price drop?



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  • CreatedJanuary 27, 2015
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